ARTICLE
11 March 2024

Secured Creditor Chapter 11 Considerations

Trenam Law

Contributor

Trenam Law
Lenders are naturally in a reactionary position when their borrowers file for Chapter 11. Following these tips will help position them for the best possible outcome.
United States Finance and Banking
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Lenders are naturally in a reactionary position when their borrowers file for Chapter 11. Following these tips will help position them for the best possible outcome.

1. Understand your loan and collateral position quickly. Gather all your documents (loan documents, title policies, UCC searches, forbearance agreements, appraisals, payment history, pre-petition collection activities), review and identify issues, and forward to counsel for review as soon as Your position as partially or fully secured makes all the difference as to your treatment and options.

2. Understand initial case deadlines. Chapter 11 cases can move Review the docket, and note the proof of claim deadline, hearings on first day motions, 341 meeting of creditors, and the plan filing deadline.

3. Evaluate the schedules Compare the items listed on the schedules to your file, look for missing assets, or dramatic value changes. Also determine whether any lender liability claims have been listed against you.

4. Prepare and file your Proof of Claim. File your claim early, calculated "as of" the petition date, and include out of pocket costs and expenses (i.e. legal fees, foreclosure fees, appraisal fees, advances for insurance or property taxes). Decide whether you want to commit to a collateral value figure in your claim, and reserve your rights to amend and reallocate between secured and unsecured amounts.

5. Understand the players in your case. The United States Trustee, other secured lenders, Creditors' Committee, unsecured creditors, landlords, and equity holders, all have a role to play in the case, and may have varying degrees of influence over the case direction. Understanding these influences will help you navigate the case.

6. Utilize the Rule 2004 Examination process as Rule 2004 allows for broad discovery with respect the "acts, conduct, or property or to the liabilities and financial condition of the debtor." Consider using this process to strengthen your position.

7. Determine your initial Your options include seeking stay relief, adequate protection, conversion, dismissal, appointment of trustee or examiner, or an asset sale. Understanding no. 1-6 will best position you to craft a solid response to the filing and to set the tone for the case, be it an aggressive response, or a tempered cooperative one.

8. Study and use the disclosure statement and monthly operating reports to your advantage. These filings contain loads of information which can help you bolster your position, and can also illuminate the true viability of the debtor's plan.

9. Approach confirmation thoughtfully. Has your initial strategy worked well? What are your end-game best and worst case scenarios? Consider what will win the war, rather than the battle. Specifically address the applicability and enforceability of your existing or modified loan documents in the confirmation order.

10. Create your post-confirmation default plan early. The harsh reality is that many confirmed plans fail. Outlining default consequences and action steps in connection with confirmation will ensure an efficient and expeditious resolution down the line.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
11 March 2024

Secured Creditor Chapter 11 Considerations

United States Finance and Banking

Contributor

Trenam Law
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